Episode summary
Earnings Special: Alphabet Disappoints Wall Street on Revenue & Income | Bloomberg Intelligence
Bloomberg Intelligence
· · 14 min · Hosts: Carol Massar, Tim Stenovec, Ed Ludlow, Paul Sweeney
Summary
Alphabet’s third quarter disappointed on both revenue and profit, with sales excluding partner payouts at $111.2 billion versus the $111.3 billion analysts expected and net income of $2.12 a share versus $2.99. The stock fell sharply in after-hours trading as the market focused less on headline growth and more on whether Alphabet’s massive AI spending is producing enough return.
The conversation centered on search, where revenue missed expectations by about $1.5 billion even as the guest said Google is seeing more search usage tied to AI features. The host pressed on whether large language models are cannibalizing search, but the guest said the numbers do not give a conclusive answer. Google Cloud was a relative bright spot at $30.71 billion, while capex came in at $51.36 billion, still far above prior norms and keeping pressure on free cash flow.
The guest argued investors are now comparing hyperscalers more directly on cash generation. He pointed to Alphabet’s negative free cash flow of $9.1 billion versus Microsoft’s roughly $19 billion, saying Wall Street is increasingly rewarding companies that throw off cash rather than those simply spending heavily on AI infrastructure.
Key takeaways
- The guest said Alphabet’s search revenue miss of about $1.5 billion is significant and leaves the AI cannibalization question unresolved.
- The guest said Google search is still the “golden goose,” but AI Overviews and AI Mode raise a monetization test.
- Alphabet’s negative free cash flow of $9.1 billion compared with Microsoft’s nearly $19 billion is now central to how investors judge the stock.
- Google Cloud beat expectations at $30.71 billion, but the guest said that strength is being offset by heavy capex and weak cash conversion.
- The host noted Alphabet’s shares were down more than 7.5% as investors reacted to the revenue and earnings miss.
Notable quotes
“Alphabet is now talking about processing about 32 billion tokens per minute”
“the company is failing to generate enough return to justify its massive investments in AI”
“overall search revenue missed by about $1.5 billion which is which is a significant miss right in this environment against Wall Street consensus”
“search is still the golden goose. And from a scale perspective, like in the quarter, it's more than half of revenue”
“Alphabet had negative free cash flow of $9.1 billion which actually shows worsening free cash flow from from last quarter”
How the episode opens
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Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidates's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk.
To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to requests for comment on its recruiting and hiring practices. But according to recruiters, advisers, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company.
and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote must be willing to work extended hours and weekends as needed. One major perk for all that hard work, employees access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time.
That's the Bloomberg Tech Minute brought to you by ChachiPT.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- alphabet earnings
- ai investment returns
- revenue miss
- net income miss
- after-hours stock decline
Companies and tickers mentioned
- GOOGL
- GOOG
- Alphabet
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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